Develop a Finely Tune Inventory Control System

One of the most overlooked and misunderstood salon areas is inventory control. Learn how to develop a finely tuned, automatic system that ensures smooth retail sales, boosts profitability and frees up your cash flow.

Salon owners know keeping
tabs on inventory
requires a huge balancing
act. Your inventory,
or the stock of your retail
and backbar products, must be
sufficient to meet the needs of your
customers and staff without running
out or tying up too much of your
budget. You need to keep hot sellers
stocked, and you need a plan to
keep slow sellers moving. You need
to order on time, and at the right
times. You need to track your stock,
audit your numbers and keep your
display shelves attractive.

âItâs a lot of workâI feel for anyone who
has to do it,â says Meghanne Haran, director
of salon operations at You Salon, Inc. in
Ellicott City, Maryland. But itâs crucial that
you do track it. After all, inventory translates
into dollars, and more importantly, it often
represent a good deal of your salonâs profit.
Beate Assmuth-Ong, co-owner of Mane
Attraction Salon in Phoenix, Arizona, puts it
this way: âOwners dread inventory, but if you
have systems in place, itâs really easy. And itâs
important, because thatâs where your money
is!â To that end, weâve rounded up owners
and experts who have created successful inventory
systems and answered our questions
about best methods and tools:

Whoâs in Charge?

Too often, a busy owner will turn over the
ordering of inventory to front desk coordinators
who rely on their district sales coordinator
to advise them of what and when
to purchase. This system seems easier, but
it isnât to the financial benefit of the salon.
Experienced owners stress the need to
have one designated person in charge of
inventory. Why? It helps centralize the process,
allows the individual to gain experience
over time, and places accountability in the
hands of one person. These inventory managers,
who are typically in charge of both
retail and backbar product as well as other
general supplies, have titles such as director
of salon operations, manager of inventory
and procurement, or director of purchasing.

While they may have a business degree or
experience as a retail buyer, the most important
criteria for an inventory manager is
someone who understands the numbers of
your business, can read reports and will work
to stay on budget. In cases where businesses
are not big enough to have dedicated inventory
personnel or lack a sufficiently trained
individual, the responsibility usually lies
with the owner.

A competent inventory manager needs
in-house training and may opt for further
training from manufacturers or outside
consultants (see âTips from the Expertsâ on
page 28). But a lot of learning is on the job,
too. Anna Martin, operations director at The
Loft Hair Design in Escondido, California,
says she was initially trained on the salonâs
then-existing inventory/ordering systems
by the lead salon coordinator. But over the
past three years, â[I have] combined our pre-established
systems, training from Bumble
and bumble, trial and error and personal
experience to perfect our inventory and ordering
systems,â she reports.

Tips from the Experts Plenty of salon owners, including some interviewed for this report, have relied on industry consultants like Summit Salon Business Center for training seminars and personalized coaching in areas such as inventory management. We interviewed Summitâs Director of Training Dave Kirby and Director of Communications Heather Bagby for their expert take on the profit potential and pitfalls of inventory. For more information on their services, visit summitsalon.com.

Q. What are the biggest mistakes salons make in regard to inventory ordering and management?

A. Salon owners are not traditionally aware that retail and professional inventory is the number two company expense. There are two common mistakes made by salon owners: The first is simpleânot ordering on a budget. Most owners simply walk over to their retail area or dispensary and create an order based on visual need. The second most common mistake is not conducting a physical count of all on-hand retail and professional products once per quarter to ensure that they are managing the trends and have adequate inventory controls in place.

Q. What are some signs that retail inventory is not being ordered/ managed correctly?

A. One indication is products that are unsold for more than 60 days. Another is phantom profit. Phantom profit is when a salon owner receives a statement from their accountant indicating they were profitable that month; however, that profit doesnât translate to cash in the bank because it is likely sitting on the shelves as inventory.

Q. Is there an optimal number of retail lines that a salon should carry?

A. It is common for salon owners to get in financial trouble when they try to manage too many product lines. For most salons, it is important that that they have a belief system that connects the professional and retail products. For example, matching the color line to the retail line is a wonderful way to provide a consistent message to the consumer. Other niche lines should be added as needed (menâs products, thinning hair). It is not necessary to overwhelm the consumer with multiple choices, but rather impactful to have a dedicated consistent message that the entire salon company can stand behind.

Q. Are there rules or guidelines for how much and how often a salon owner should order retail product?

A. If possible, weekly ordering provides the most efficient use of inventory dollars. SSBCâs formula for retail ordering is 52% of the previous weekâs retail sales if you are ordering weekly. Additionally, we recommend the owner also calculate the order prior to submission to ensure they have not gone over budget. A salon owner should never be surprised when they open a supply bill; they should already know what they spent!

Q. How much of a salonâs budget should be tied up in inventory?

A. The amount of income that comes from chemical services and retail sales impacts the inventory budget. As a rule of thumb, starting with enough product for one month of chemical and retail sales is a good starting point. Q. What tools can help track inventory? Are there any in particular that you recommend?

A. SSBC utilizes a manual tracking form for monitoring and ordering. This form should be updated on a weekly basis for management and on a quarterly basis via a physical count. The salon should have processes in place for receiving and deleting product in its inventory. Many salons utilize software systems. These are excellent resources as long as the data entry is done properly. Regardless, a salon owner should understand how to manage the inventory and canât afford to ignore this important part of owning a salon.

Q. Do you recommend designating an âinventory managerâ and what kind of training should this person have?

A. Remember, we are talking about the salonâs number two expense so in most cases the salon owner needs to be the inventory manager. With some assistance from a well-trained sales consultant, this can actually be a very simple process. Owners may utilize hourly employees to assist, as long as the budget is set and approved by the owner. The training required is to understand the budget (formulas), monitor the top eight retail products, and monitor trends in professional use.

Ginger Bay Salon & Spa in St. Louis,
Missouri, created a director of purchasing
position when they started open book management
in 2008 and realized they needed a
better handle on their inventory systems. âNo
person really âownedâ inventory,â explains
owner Laura A. Ortmann. Now, Colleen May,
who has filled that position, is responsible
for ordering all inventory and supplies in the
company, as well as âoverseeing stocking
and safekeeping of all inventory, overseeing
the budget for inventory purchases, and
reporting regularly to leadership regarding
her budget and what irregularities she identifies with inventory counts and usage,â says
Ortmann. âOn our P&L, Colleenâs name is
beside each inventory and supply expense
entry to signify that she is responsible for
those items.â Inventory managers are accountable,
but they donât work alone. They need
assistance from everyone else in the salon
to maintain an accurate count and efficient
turnover (more on that later), so inventory
management is truly a team process.

How Much to Order?

Ordering inventory is more complex than
just refilling your shelves. Most salons utilize
software or spreadsheets that track how
much product has sold or used for backbar,
then averages it out over a weekly or
monthly period to determine out how much
to re-order. Since you donât want to sell out
completely before you re-order, youâll need to
keep a certain amount of product on handâ
typically a one-to-two month supply. A hot
product or a busy season (think Christmas)
may warrant two or more months of supply,
but if you have slow moving product that
you wish to keep selling, or are coming up
on a slow time of year, a few weeks supply
might be sufficient.

Whatever amount you keep on hand, you
should know its âturnover rate.â Thatâs the
period of time it takes to sell-through an established
amount of product, explains Bryan
Nunes, co-owner of Blo in Raleigh, North
Carolina. âWe set our on-hand minimums
to a predetermined turnover rate. In other
words, if a product has a âminimumâ of 12
units on hand, and our turnover rate is 90
days, then we expect to sell 12 units in 90
days. If we do this, then our minimum or
ârightâ amount of retail product is in line
with what we like to have on hand.â On the
other hand, he says, âIf we discover that our
minimum is taking 120 days to sell through,
then we adjust the minimum to make sure
we are not leaving cash fl ow on the shelves.â

At Mane Attraction Salon, Assmuth-Ong
uses an Excel spreadsheet to track sales and
usage of both retail product and backbar (see
âKeeping Track: One Ownerâs Methodâ
on page 30). That way, she has a history
on each product that helps her know how
much to re-order at a glance to fulfill the
two-month supply that her salon keeps on
hand. âIt works for us,â says Assmuth-Ong.
âThree to four months is too much money
out of pocket, and two months guarantees
you wonât run out of product.â

New products can pose a challenge because
their sales are diffi cult to predict. For example,
Assmuth-Ong had no history on a new Brazilian
Blowout product they decided to stock, so they
estimated an order. But the novelty of the item
excited stylists, who received training and education
on it, and they helped drive up sales.

âSales can spike up two to three times what a
manufacturer suggests,â warns Assmuth-Ong.
While enthusiasm is always a good thing, you
never want to lose a sale due to inefficient inventory.
If youâre out of stock, take a tip from many
owners and get the clientâs name and payment
infoâoffer a 10% discount for prepayingâand
then notify them when itâs back in stock, or
even ship it to their home for no extra charge.
To streamline your order process, consider
limiting the number of retail and backbar lines
you carry. Steve Gomez, professional development
manager for Milady/Cengage Learing,
says a good rule of thumb is no more than four
lines that appeal to different customers and demographics.

Fewer lines also help you keep a
consistent message and develop stronger partnerships
with your distributors and manufacturers.
As a bonus, ordering more product from fewer
manufacturers means it will be easier for you
to fulfill their minimum order requirements.
Now that you have an idea of quantities to
order, make sure those numbers are in line with
your budget. Gomez suggests that a salonâs
weekly retail budget be no more than half
of their previous weekâs retail sales. âOrder
product based upon a 50% budget per line,â
he says. âMeaning, I sell $400 this week in
line A, my budget to restock the shelves is
$250.â Backbar budgets will typically be even
less than half, sometimes substantially so.

Laurie Helmick, co-owner of Luxe Salon
in Denver, Colorado, focuses less on percentages
and more on hard numbers. She
keeps total inventory at $30,000 at cost. Her
ordering assistant takes care that inventory
never goes above that dollar amount, and
sheâs rewarded for it with a quarterly bonus.
Whether you base your inventory by budget
percentages or specific dollar amounts,
youâll know youâre on the right track when
your products are consistently stocked with
neither shortage nor surplus.

An optimal time to place an order is after
a busy weekend, says Nunes of Blo. âWe
currently order every Monday before 8:30
a.m. This allows our distributor to guarantee
delivery by Tuesday morning, which is
not a high-traffic time because we host our
continuing education on Tuesdays. This
allows our guest services department the
opportunity to check the inventory without
distraction.â Because his salon has recently
expanded to nearly 5,000 square feet and
two color bars, Nunes says he will likely
switch to ordering two times per week. He
feels the benefits will outweigh the costs:

âChecking in inventory for that type of
volume can take half the day,â he explains.
âThat is not prudent for maintaining proper
on-hand amounts, as well as minimizing the
opportunities for human errors at check-in.â

For ordering purposes, salons with more
than one location may want to treat them each
as separate entities. âFor our larger salon, we
have chosen to continue weekly ordering,â
says Johanna Morgan, manager of inventory
at Mango Salon in Richmond, Virginia. âFor
our newer salon, we have chosen to use biweekly
ordering for retail because the manufacturer
only allows ordering in quantities
of six and they have a high shipping cost.â
However, both locations order backbar weekly
to keep stock consistent. The benefit for individualized
ordering is that you can adjust
for each locationâs specific needâif one has
more walk-in traffic, for exampleâbut still
have the option of transferring product from
one salon to another in a pinch.

How to Track It?

Software is a valuable tool when managing
inventory. Make sure your salon software
has a program for tracking stock levels in
real time, generating automatic retail orders,
creating reports that list the fastest selling
and slowest moving products, and displaying
sales trends over timeâthen make sure
you or your inventory manager knows how
to use it. Additionally, manufacturer inventory
workbooks and customized spreadsheets
from Milady/Cengage Learningâs Financial
Analysis and Coaching Tools package can
assist with tracking.

Integrated POS systems utilize a barcode
scanner so that when a product is sold
or put onto the backbar, itâs simply scanned
out and inventory automatically updates in
the computer system. To eliminate stylists
forgetting to âscan outâ backbar, You Salon,
Inc. developed an easy system: âWe have a
bin in the styling area, and everyday stylists
throw their boxes (with the barcode) in that
bin,â explains Haran. âAt the end of day, we
take them out and scan them so they are out
of inventory.â

When salons see they have a product that
is not moving, they can take action. That
may mean specific product education for
stylists, or creating a promotion or product
focus display. Helmick of Luxe Salon tries
to negotiate a poor seller with her rep, who
might let her swap it out with something that
does wellâthough Helmick cautions that
most reps donât work like that! If she canât
return it, sheâll mark it down 40% to get it
moving. âIt hurts my margins, but itâs better
than it just sitting there,â she says.

Ginger Bay Salon & Spa puts slow movers
in hard numbers. They distribute a list of
poor sellers to the team leads, service providers
and guest services, and include the dollar
value of each and how much is still sitting in
inventory. âOur department team leads can
create goals and mini-games around selling
these products within 30 days,â says Ortmann.

âWhen our teams meet weekly for their respective
huddles, they can see the progress
they are making with their mini-game.â And
after the mini-game is over, service providers
can see the monetary value of their efforts
and, sometimes, even share in the rewards of
moving a poor seller out of inventory.

Blo staff like to piggyback a slow seller
onto a hot seller. âBuy this top performer and
try this poor performer for free, or vice versa,â
says Nunes, who defines a âtopâ performer
as a product that consistently outperforms
its minimum turnover rate. Curious about
which products are hot at these inventory-savvy
salons? Answers vary, but most owners
say their biggest category is styling products,
followed closely by shampoo. When
you track whatâs selling for you, youâll see
where youâre making moneyâand where
you might be losing it.

How to Audit It?

To ensure accuracy, physical counts are
performed to ensure that whatâs on the shelf
matches up with whatâs in the system. Many
salons do a monthly audit on retail and a
quarterly audit on backbar, although some
may even do it more frequently. Typically,
two or more employees join the inventory
manager to do the count and check each
otherâs count. It sounds boring, but itâs serious
business, says Haran: âIf you donât
know what you have, you donât know what
you need.â

At Luxe Salon, physical inventory is
done every month at the same time, with the
same employees. âYou learn to understand
the product better and how to order better,â
explains Helmick. Not only that, she adds,
but consistent inventory means you stay on
top of your product and protect yourself
against theft. That rings true: The majority
of salons reported that a strict inventory
system, as well as loyal employees, means
that internal theft has never been much of
a danger. However, shoplifting is a threat
to any business. Haran says that she has
noticed discrepancies in retail stacked by
the front door of the salon. To counter that,
the staff makes it a point to offer assistance
to shoppers walking into the salon. Ginger
Bay Salon & Spa takes more high-tech
measures: âWe have security cameras in
the salon to deter theft, and we do prosecute
shoplifters,â says Ortmann. âIf an individual
displays suspicious behavior, we have the
ability to immediately review video camera
footage. Often, however, inventory losses
are not that obvious.â When there is inventory
missing, they record the loss.

Most inventory discrepancies are innocent,
say owners, whether from a backbar product
that was not scanned out or just human
error in counting. Since it canât always be
avoided, most salons, such as Ortmannâs,
accept a reasonable minimum variance of
around 2%. âOur 2% variance benchmark
was derived from looking at past losses, estimating
the dollar amount equated with any
loss and creating an acceptable benchmark,
and from looking at other acceptable inventory
systems from our manufacturer, other
salons, and other small businesses, such as
restaurants/bars,â she says. âSince creating
our 2% variance benchmark, we have managed
to stay below it in losses.â

How to Display It?

Assmuth-Ong cites the old retail slogan,
âStack âem high, watch âem fl y,â when she
discusses the importance of a full display.
âWe keep 4-7 of each product on the shelf
at a time,â she says. âYou want people to
know youâre serious, that you believe in
the product.â

Other salons have mentioned stocking
an entire two-week supply on the shelves,
and Helmick concurs that full shelves are
essential to healthy retail: âItâs a proven fact
that people donât buy the last product on the
shelf. You have to commit to having stock at
all times, and it needs to be consistent.â She
should know, as she reports her salon does
$300,000 a year in retail with little walk-by
traffic. Helmick proclaims, âWith inventory
controls in place, anything is possible
retail-wise!â

Not only should the retail area be teeming
with product, but make sure it is pulled to the
front of the shelves and organized professionally
with rotating product spotlights, say our
owners. That creates an exciting shopping
experience for the customer. And after all,
with all the time and money youâve invested
in inventory, youâll want to show it off.

Keeping Track: One
Ownerâs Method

Beate Assmuth-Ong, co-owner of Mane Attraction Salon
in Phoenix, Arizona, shared her Excel spreadsheet with us,
which tracks her inventory in easy-to-read columns. In this
snapshot of January 2010, she can easily view numbers
for every product she carries, such as open count, amount
received, and amount sold. An Excel formula automatically
calculates the âshould beâ count. Finally, Beateâs team
takes a physical count, and any difference between the
âshould beâ count and the actual count is recorded in red.
This same chart is created for every month, and quarterly
averages are tallied for a big-picture view of the whole year.

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About the Author:

Kelly Cison

Kelly Cison is a Chicago-based freelance writer specializing in beauty, style and wellness. As a MODERN SALON Media contributor, she writes trend and feature stories for both print and web. Her favorite beauty pick-me-ups: balayage color and hydrating facials.